London School of Economics and Political
Science (LSE)
Modules
100
Banking operations and risk analysis
Prerequisite – 94 Principles
of banking
Trends in banking structure: considers
the main trends influencing the development of financial institutions
around the world. The most important of these are the impact of technological
and financial innovations combined with the structural de-regulation
of financial markets. One of the consequences of these trends is a
move towards the concentration of financial services with an increasing
number of mergers between banks and other financial organisations.
Theories of the banking firm:
examines various models of the banking firm, such as the asset allocation
and the liability of choice models, as well as considering the asset
transformation role of banks and the various roles of banks’
liabilities and the two-sided nature of the financial firm. Various
methods of analysing bank performance are also considered.
Balance sheet management, liquidity
and capital adequacy: considers the asset and liability management
of banks. A brief history of asset and liability management is followed
by an examination of techniques for managing assets and liabilities,
including the role of liquidity and capital adequacy.
Risk and risk management: covers
risk and risk management. Six main types of risk are analysed: credit
risk, liquidity risk, interest rate risk, currency risk, country risk
and contingent risk (off-balance sheet risk). The various methods
for controlling these risks are considered.
Lending: Analyses the leading
functions of banks, covering short, medium and long-term lending and
the associated assessment of risk/return. Issues of security, ability
to repay and the administrative process are also considered.
Retail banking: covers trends
and developments in retail banks. Of particular relevance is the impact
of technological and socioeconomic developments which have influenced
the supply of new banking products. The evolution of new products
over the last 20 years is considered together with the changing nature
of the bank/customer relationship.
Wholesale and corporate banking: examines
wholesale and corporate banking covering produce range, treasury functions
(including derivatives), and the changing nature of the relationship
between banks and their corporate clients. Of particular relevance
is the segmentation of the market between small and large corporate
clients, and how banks respond to their different needs.
International banking: covers
trends in international banking by examining the various definitions
of different types of international banking and branches overseas;
the relationship between international banking and the capital markets
(particularly the Euromarkets), the role of banks in international
financing, and the role of banks in lending to the Third World countries.
Risks, crises and prudential regulation:
analyses risks, crises and prudential regulation. The various
types of risks which need to be regulated are examined together with
issues surrounding prudential regulation, including the move towards
a common international environment.
Risk management:
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Managing interest rate risk: assets
with fixed cash flows; assets with variable cash flows; caps and
collars; swaps; interest rate futures; forward rate agreements;
portfolio of assets.
-
Managing foreign exchange risk: full
hedge with forward or futures contracts; complexities of hedging
with futures contracts; partial hedges with forward or future contracts;
hedge with an option contract; partial hedge with options; full
hedge with a money market hedge; managing exchange risk using swaps;
contingent assets; future debt; future asset with a random value;
balance sheet hedge; hedging with derivatives; diversification into
currencies.
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